If you are involved in supply chain management or make logistics decisions for your company, you may have heard of the terms Contract Manufacturers or Supply Chain Management companies. Choosing to seek a partnership with a contract manufacturer or a supply chain management company may benefit your company’s bottom line. While both offer many potential benefits to your company and opportunities for cost reductions, they are ultimately extremely different. Read on to learn the benefits of each type of outsourced manufacturing.
Contract Manufacturers
Working directly with a contract manufacturer is a frequently used strategy when deciding to outsource manufacturing. A contract manufacturer (CM) is a third party hired to produce a component, sub-assembly or finished product. This strategy is often driven by the fact that the production becomes more complex, or the product is too expensive to manufacture internally.
When using a contract manufacturer, you will eliminate many expensive capital expenses for purchasing the necessary equipment. You will not have to maintain the equipment and you could enjoy access to highly specialized and technical manufacturing insight. You may also benefit from excellent after-sales service since the manufacturer strives to protect their brand’s reputation. In addition, you will have full access to the CM and their specialized, technical manufacturing insight since you will be working with them directly. Contract manufacturers are an excellent option for a startup or SMEs, because of the “low-cost” benefits and not having to take on considerable overhead. Large OEMs look to this option to move their own resources toward more core activities (often research and innovation) and not have to oversee production. Some CM’s can provide basic “end-to-end” services, which can really simplify the workload for a business. CM’s can even offer flexibility in manufacturing, such as the ability to produce custom parts and scale production up or down.
Although there are several benefits affiliated with contract manufacturing, there are also disadvantages that should be considered. First, you must invest a massive amount of time and effort in the selection and negotiation process, and the supply management. You must remain diligent and closely manage that relationship over time. Your contract manufacturer may have bias and inefficiency that can be at odds with your best interests (MOQs, pre-payments, lead time, warehousing), or the CM may attempt to force-fit you into its factory capabilities or capacity. You might also face warehousing limitations or high MQOs and high pre-payments. The long-term financial disadvantages may be costly and difficult to manage.
There are some inherent risks you will have to mitigate when working directly with a CM. The most significant one we have seen is that you may put yourself in a sole sourcing situation. That dependency could dramatically hamper your negotiation opportunities. In addition, the CM could show favoritism of a larger customer and provide uneven service. When outsourcing a contracted manufacturer, you could also unintentionally choose one that is unreliable. It will be very important to research their history and reputation as well as gather references. Not meeting deadlines and producing sub-par quality items could cause major issues for your business. Sole sourcing to a single CM could cause issues if their supply chain were to be compromised. Finally, you run the risk of having your ideas and designs stolen or sold to competitors or other third parties. While this is rare, businesses have been destroyed because of taking this risk.
Selecting the right CM is much harder than it looks, especially if you consider an offshore CM. Mitigating the risks on your own can be an overwhelming and tedious task. Choosing a partner, like Chainlogix, who can manage your contract manufacturers, along with your entire supply chain is the optimal choice in outsourced manufacturing control.
Looking for a partner who can manage your entire supply chain and help to mitigate the complications of overseeing contract manufacturing?
Contact the professionals at Chainlogix to learn more today.
Supply Chain Management Companies
Choosing a supply chain management company is the ultimate choice in mitigating risks with outsourced manufacturing. Supply chain management, or SCM, is the process of overseeing how goods and services evolve from idea creation and raw materials into a finished consumer product. A supply chain management company, like Chainlogix, manages your company’s global sourcing, designing, planning, manufacturing, assembly, warehousing, and logistics so you can focus on other business needs.
There are many advantages to choosing to outsource manufacturing with a SCM company. For starters, there is an increased efficiency rate and you can start outsourcing manufacturing much faster. Your SCM company should have an established network of vetted and highly qualified suppliers and manufacturers. They can leverage their relationships and speed execution. A good SCM will ensure that you are not tied to sole sourcing or limited to line card, equipment, and technology. This means that with supply chain management, your business will be able to adjust smoothly to the current economy, potentially unforeseen crisis market, and lessened product lifespan.
Partnering with an SCM expert can provide excellent cost reductions. They can help you do this by strengthening your relationships with vendors and distributors, leveraging their own relationships, helping to provide storage for your product supply, enhancing your inventory system, and improving receptivity to your customer’s demands. Another significant benefit is decreased lead-time of product. Your supply chain management partner, like Chainlogix, will handle the coordination with the shipping/transport companies, vendors, and suppliers, resulting in more streamlined communication and smoother flow. SCM companies can increase the overall profitability of your product line. Because they have a well-established network, they can open your company up to new technologies and provide you with enhanced partnerships within other areas of the industry.
Outsourcing to a supply chain management company, like Chainlogix, can help to mitigate a multitude of issues. A reliable SCM company will help you avoid missing out on the implementation of important changes within your supply chain. At Chainlogix, to ensure that we do not cause any disruption in your supply chain, we carefully analyze your delivery schedule, downsizing opportunities, and last-minute logistic requirements before we begin to manage your supply chain.
Partnering with a supply chain management company can also eliminate the overhead costs associated with ongoing training of your workforce on new supply chain processes or procedures, costly management and oversight time, and heavy employee turnover. Working with a reputable SCM company will help you improve your overall supply chain efficiency, reducing costs and creating assurance of supply. The supply chain management experts at Chainlogix are focused on continuously analyzing data for our clients and are always searching for new ways to improve our customer’s efficiency and reduce their overall expenses.
At Chainlogix, we’ve spent years cultivating relationships with proven suppliers and securing the most competitive prices for our clients. We proudly offer the best custom-tailored solutions in the business, and with exceptional customer care that places a high emphasis on human relationships and connections.
We serve clients across a broad range of markets including industrial and consumer electronics, industrial machinery, telecommunications, lighting, and construction. Our services encompass all areas of the procurement process such as:
- Product development, design, and NPI
- Sourcing
- Production
- Logistics
- Supply and demand planning
Call Chainlogix at 833-874-6635 to learn more about how we can provide supply chain management and support with logistics in your daily business operations.
